Panel Backs Bond Dealers Against Moorlach’s Advice

Despite warnings by Orange County Treasurer John M.W. Moorlach, a county financial advisory committee Thursday unanimously endorsed two financial firms deeply involved in last month’s failed 91 Express Lanes deal.

The Public Finance Advisory Committee voted to recommend that county supervisors hire Orrick, Herrington & Sutcliffe, the nation’s largest bond firm, and a small Bay area financial firm to handle bond deals with the county’s cut of tobacco settlement money.

“While the 91 deal may stink to the high heavens, I don’t know anything that Orrick might have done that might be out of the usual procedure,” said Thomas Hammond, chairman of the committee.

Moorlach had urged the committee to keep from recommending the two firms, citing questions surrounding their lack of disclosure on documents filed with the Internal Revenue Service and Caltrans over a sale of the 91 toll lanes from a private company to a nonprofit corporation. The proposed sale died amid heavy criticism.

In a memo to committee members last month, Moorlach wrote: “I do not condone the stealth tactics that they used to perpetrate a potentially harmful bond financing transaction on the citizens of Orange County.”

In the case of Orrick, Herrington, questions were raised about whether the bond firm had a conflict of interest by doing legal work for all four parties involved in the derailed sale of the 91 Express Lanes: the buyers, the sellers, the state bank making the loan and the bond underwriters.

Orrick senior partner Roger Davis said that while the firm was involved from the inception of the idea to sell the toll lanes to a nonprofit, and even filled out forms the nonprofit sent to the IRS, it represented only the state bank that planned to issue up to $274 million in bonds to finance the deal.

Last month, it was disclosed that an Orrick attorney told the IRS there was no special relationship between NewTrac and toll road operators even though the operators came up with the concept to sell the road to a nonprofit and approached Gary Hausdorfer, who became the head of the group. That lawyer, Steve Malvey, said Thursday he still believes there was no special relationship.

At Thursday’s meeting, Moorlach charged that the county’s recommendation to retain the two firms was reminiscent of the county’s prebankruptcy mind-set when attorneys working for the county were “enamored” of other financial firms.

“We’re seeing a pattern that I saw five years ago,” Moorlach said. “I’m concerned about it both as a citizen and as a public official.”

He urged the committee to delay a decision until after state investigations surrounding the toll lanes deal have been completed.

Deputy County Counsel John Abbott, who was also at Thursday’s meeting, was incensed by Moorlach’s comments, which he called “reckless” and “outlandish.”

Committee members also questioned Sperry Capital’s experience since the firm has only three professionals and has never worked on any bond deals related to tobacco settlements. But Thomas Beckett, the deputy finance director, said Sperry was selected because it has provided other financial advice for the county.

“I’m not looking for a gorilla, I just want somebody who knows us,” Beckett said.

After the meeting, Moorlach said he was simply doing his job in questioning the financial deal.

“What I’m concerned about is a thorough and accountable disclosure,” Moorlach said.

But many times, he said, officials rely on firms they’ve worked with in the past.

“They’ve worked with them, so they feel comfortable with them,” Moorlach said. “Those relationships are really important but they can also blind you.”